Claude Lavoie is a contributing columnist for The Globe and Mail. He was director-general of economic studies and policy analysis at the Department of Finance from 2008 to 2023.
A large majority of Canadians support imposing tariffs on some Chinese products, reducing the number of temporary foreign workers and scaling down immigration. We need to recognize that closing our borders to foreign products and workers will raise our cost of living. We cannot logically applaud policies aimed at mitigating our fears and anxiety while simultaneously complaining about the increasing cost of living. Canadians cannot have their cake and eat it too.
Mounting opposition to immigration and global trade – especially with countries other than “our friends” – is pushing for isolationist policies in Canada, the U.S. and Europe. There are Justin Trudeau’s recent announcements, Pierre Poilievre’s promises to bring our jobs home and candidate Donald Trump’s promises to impose tariffs on every foreign import coming into the U.S.
Friendshoring and “making stuff at home” may make us feel more independent and less subject to global risks. But like in day-to-day decisions there are costs to reducing risks and we need to strike the right balance.
“Derisking” does not need to go against the benefits of comparative advantage and specialization that have historically fuelled global prosperity. We want our society to be resilient to wars, pandemics and natural catastrophes, but protecting every sector and trying to produce everything we may potentially need within our borders is the wrong approach. It would excessively increase costs and drastically reduce our standard of living. And, no, it would not create jobs, just displace them.
We can neither reliably predict the shocks coming our way, nor which of today’s friends will become tomorrow’s enemies. Many people blamed the government for not having masks or vaccines ready when the pandemic hit. But should we have idle production capacity? Or warehouses full of stuff for any potential imaginable risk just in case?
A better approach is to make sure our economy can pivot and adapt quickly. Past crises, including the pandemic, taught us that diversity enhances resilience. When a tsunami in Japan put a significant proportion of the world’s automotive supply chains out of action, companies turned to other suppliers (and did not reshore). Canada was also able to counteract “vaccine nationalism” from our supposed friends south of our border by having contracts with multiple suppliers in diverse countries.
Instead of having tariffs and subsidies to ensure we make stuff at home or trying to guess who will continue to be a trusted friend, it may be better to have the ability to tap multiple suppliers around the globe. This creates a rationale for having quality transport infrastructure and regulations that facilitate the ability to change suppliers quickly, and for free-trade agreements with many global trade partners, not just a few. It also calls for more global competition: The fact that our interconnected digital world is concentrated in the hands of few actors creates vulnerability.
There are likely cases in which security risks and the consequences of a supply disruption are so high that protection, nationalization or strong regulation of some sectors is necessary. But which ones? Identifying them requires systemic risk analysis to identify the large, undiversifiable risks and the regulations necessary to mitigate them. I would be very surprised that such an analysis would support recent policies protecting the electric car industry, except maybe pointing out the cyber risks their connectivity may be posing (which are not unique to electric cars).
Anti-immigration policies are often a response to economic and status anxiety and aim to address perceived risks. If the source of population increases had been domestic rather than foreign, would we call for a decrease in natality? Many people blame low-skill immigrants, such as temporary foreign workers, for higher housing costs, lower wages and lower productivity. These risks are likely limited; many studies suggest their impact on wages, housing costs and productivity is not significant.
Some of the main causes of low wages and unaffordable housing are the declining bargaining power of workers (better protection for foreign workers would help), governments caving to lobbies and zoning regulations limiting housing supply’s response. Still these perceived risks may be sufficient to create social concerns. That said, it is clear fewer temporary foreign workers would mean higher prices for things such as caregiving and local food.
Trade decisions based on geopolitical risks rather than cost considerations, and a reduction in the number of foreign workers, are going to make things a lot more expensive for consumers who are used to benefiting from cheap foreign labour.
We may want more security and to have our anxiety appeased, but we need to be ready to pay for this.
